Financial Services Committee

Legislation

H.R. 2167, introduced by Rep. David Schweikert, removes an impediment to capital formation for small companies by raising the shareholder threshold for mandatory registration with the SEC from 500 to 1,000 shareholders. The shareholder threshold was originally adopted in 1964 and has not been modernized since then. At a recent hearing, the Committee received testimony from witnesses regarding the impact the bill will have on the availability of credit for small companies, job creation, and economic growth.

Upon approval by the Capital Markets and Government Sponsored Enterprises Subcommittee, Rep. Schweikert said: “I am excited that the subcommittee has passed this bi-partisan bill that unwinds red-tape on small businesses and allows for growth and job creation. Currently, many small businesses are forced to file as a public company due to an obscure 1964 regulation that requires companies with 499 shareholders and $10 million in assets to file with the SEC. This regulation severely limits the growth stages for companies, which need time and flexibility to develop. I introduced this bill because burdensome regulation cannot grow the economy nor can it create jobs. H.R. 2167 will help entrepreneurs grow their business, remain competitive, and create jobs.”

The legislation was approved by the Subcommittee on October 5th by a voice vote.

H.R. 2940, introduced by Rep. Kevin McCarthy, removes the regulatory ban that prevents small, privately held companies from using advertisements to solicit investors for private offerings. Securities laws not only prohibit general solicitation and advertising but require investors to have an existing relationship with the company in order to meet SEC exemption requirements. This ban has limited the ability of small businesses to raise capital.

On October 5th, the Capital Markets and Government Sponsored Enterprises Subcommittee approved H.R. 2940 by a voice vote.

After Subcommittee passage, Majority Whip McCarthy said, “Small businesses are the engine of the American economy. In order to flourish, entrepreneurs and small business owners need fewer regulatory restrictions and greater access to capital to start and grow companies and get more people working. Unfortunately, onerous federal regulations dampen both innovation and access to capital because of the restrictions and compliance burden they place on these enterprises. That’s why I have introduced HR 2940, the Access to Capital for Job Creators Act, which removes the solicitation prohibition contained in Rule 506 of Regulation D of the Securities Act. This will give small businesses another way to access private capital by allowing them to widely seek funds from the entire pool of wealthy SEC accredited investors without requiring them to go through the full SEC registration process.”

H.R. 2930, introduced by Rep. Patrick McHenry, permits “crowdfunding” to finance new businesses by allowing companies to accept and pool donations up to $5 million without registering with the SEC. Crowdfunding is an innovative and lower-risk form of financing that enables several individuals to pool money to in a particular company. SEC regulations prohibiting general solicitation have acted as a barrier to crowdfunding developing and flourishing in the United States.

The bill was approved by the Capital Markets and Government Sponsored Enterprises Subcommittee on a vote of 18 to 14.

Rep. McHenry said, “It’s clear that we need new ideas to help provide small businesses and entrepreneurs the ability to create jobs. With so much difficulty obtaining capital in today’s economy, most business ideas never make it past the dinner table. This legislation will connect entrepreneurs with everyday investors to help get their businesses off the ground. I’m thankful the subcommittee was able to pass this crowdfunding legislation with bipartisan support and look forward to further discussing its merits in the full committee.”

The legislation, introduced by Rep. Stephen Fincher, expands the exemptions available to small companies from certain costly reporting requirements of the Sarbanes-Oxley Act. Since 2007 the SEC has exempted small companies with a market capitalization of less than $75 million. Market participants have repeatedly said the current SEC exemption provides no benefit since the threshold is too low.

The bill was approved by the Capital Markets and Government Sponsored Enterprises Subcommittee on October 5th. The vote on final passage was 18 to 14.

Upon Subcommittee passage of the bill, Rep. Fincher said, “Today’s subcommittee passage of the Small Company Job Growth and Regulatory Relief Act committee draft is a first step in slicing through needless regulation to help small companies use their scarce resources to expand and create jobs. Expanding the Sarbanes-Oxley 404(b) exemptions will encourage more companies to go public in the United States, instead of abroad. My legislation will also create more opportunity for companies to raise desperately needed capital to reinvest and grow business, while still preserving the goal of Sarbanes-Oxley. I look forward to advancing with this legislation and seeing it go to a full committee vote.”

The legislation, introduced by Rep. Steve Pearce, requires the Treasury Department to approve any new debt issuance by the GSEs. If Treasury approves a debt issuance, it must explain and justify its decision to Congress and the FHFA within seven days. The legislation limits the amount of GSE risk taking. On April 8, the Capital Markets and Government Sponsored Enterprises approved the legislation on a vote of 18-0-1.

A provision added to the Dodd-Frank Act without any debate requires publicly traded companies to disclose their median annual total compensation of all employees. Two months after the Dodd-Frank Act was signed into law, the Financial Services Committee received testimony about the enormous burden and complexity this provision poses to publicly traded companies, with very little, if any, corresponding benefit to investors. The Burdensome Data Collection Relief Act would repeal this provision of the Dodd-Frank Act. The legislation is sponsored by Representative Nan Hayworth.

The Dodd-Frank Act included a liability provision for credit rating agencies if their ratings were determined to be inaccurate. Within days of the Dodd-Frank Act becoming law, this liability provision temporarily shut down the asset-backed securities market, forcing the Securities and Exchange Commission (SEC) to step in and issue a temporary no-action letter on July 22, 2010. On November 23, 2010, the SEC issued a permanent no-action letter. The Asset-Backed Market Stabilization Act provides certainty to the issuers of asset-backed securities by repealing the liability provision. The legislation is sponsored by Representative Steve Stivers.

The Financial Services Committee has received testimony regarding the role private equity firms play in preserving existing jobs and creating new ones by providing capital to struggling and growing companies. The Dodd-Frank Act requires most advisers to private investment funds to register with the SEC, including advisers to private equity funds. The Small Business Capital Access and Job Preservation Act, H.R. 1082, exempts advisers to private equity funds from the registration requirements. The legislation is sponsored by Representative Robert Hurt.

The Dodd-Frank Act requires derivatives transactions to be cleared through a registered clearing house, and exempts swaps and security based swaps from this clearing requirement if one of the counterparties is not a financial entity. The Business Risk Mitigation and Price Stabilization Act exempts true derivatives end-users from having to post margin as required under Dodd-Frank. True end-users are firms and companies that use derivatives to manage their risks, not to speculate. The legislation is sponsored by Rep. Michael Grimm.

Representatives Spencer Bachus (R-AL), Frank Lucas (R-OK), K. Michael Conaway (R-TX), and Scott Garrett (R-NJ) introduced H.R. 1573, which would extend the deadline by 18 months for implementing Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill gives the regulatory agencies more time to effectively meet the objectives of the derivatives title, to prioritize deliberation over speed, to consider the costs and benefits, and to understand the cumulative impact of the rules that will be applied to the marketplace. Additionally, the bill realigns the U.S. with the G20 agreement to implement reform by December 2012.

The derivatives provisions of Dodd-Frank will impact every segment of the economy. The bill reflects the concerns of thousands of U.S. businesses, i.e., end-users, that use derivatives to manage the risks they face every day. For example, farmers use derivatives to lock in the prices of their crops for the coming season. Manufacturers hedge against fluctuating prices in the raw materials that go into production. Hospitals hedge against rising interest rates on financing medical equipment and technology.

To provide clarity to market participants, the bill maintains the current timeframe for the Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) to issue final rules regarding regulatory designations that will define the market, and maintains the current timeframe for rules requiring record retention and regulatory reporting. It also requires additional public forums to take input from stakeholders before the rules can be made final.